1 N.J. Eq. 259 | New York Court of Chancery | 1831
Very little evidence lias been taken on either side, and some of the material allegations in the bill and answer are not sustained. There is no proof to support the charge that the money was by the consent of ail parties to remain in the hands of Everitt until the death of the widow, when the different persons interested might claim their shares, and it is expressly denied by Fox: on the other hand Fox, the defendant, has failed to show that the transfer of the bond to Boss was without his privity or approbation. There is reason to believe that the Everitt bond was about to be paid off. His administrator had applied for a sale of his real estate to pay debts, as early as October, 1821, and the order was granted in February, 1822, which was before the transfer and loan to J. Britton. The sale, it is true, was not actually made until March, 1823; nor was the money paid to Boss until 1824. The loan to Jonathan Britton was with the knowledge and consent of both administrators, and there is some evidence in relation to the solvency and credit of Jonathan Britton at the time, which will be adverted to hereafter.
Two questions present themselves :—
1. Was the conduct of these trustees such as ought, on principles of equity, to subject them to any personal liability, in case the whole or any part of this fund was lost 1 And,
2. If they are affected with such liability, will the proceedings in the orphan’s court relieve them ?
There does not appear to be any foundation for the charge in the bill, that the security was changed from any sinister or interested motives on the part of the administrators. I am willing to believe that they honestly thought it advisable and proper to assign the bond to Boss and to loan the money to some other person. If they are liable at all, it is not on the ground of corruption ; it «must be on the ground of negligence—that they have loaned out the money without taking due security, in consequence of which the greater part of it is lost.
A review of the cases in England will lead us to the rule adopted on this subject by the court of chancery there, and will aid us in testing the propriety of its adoption here.
In the case of Sir Ed. Hale and the Lady Car, in chancery, 1637, referred to in 3 Swans. 64, in notis, the Ld. Keeper says, if a person intrusted with others’ monies, let it out to such as are trusted and esteemed by others to be men of worth and ability, if any loss happen, he shall not bear the loss. In Morley v. Morley, 2 Ch. Ca. 2, (1678,) the defendant being trustee for an infant, was robbed of forty pounds sterling, and also of two hundred pounds of his own money : the court held, he was bound only to keep it as his own, and allowed it to him in the account. And in Jones v. Lewis, 2 Ves. 240, (1750,) Ld. Hardwicke held the same doctrine. These cases (the two last especially) seem to go on the principle that a man will always be careful of his own property; and that if he extends the same degree of care to the property of others in his hands as to his own, he will be in no danger. If all men were prudent in the management of their own affairs, there might be safety in adopting this principle ; but that is not the case, and hence the later authorities have sought to establish one more uniform and stable.
In Adye v. Feuilleteau, 1 Cox, 24, (1783,) an executor had
Tn opposition to these very decided authorities, there is but one express decision that I have met with, and that is the old case of Harden v. Parsons, 1 Eden, 145 ; in which Ld. Worthington says, that lending trust money on a note is not a breach of trust, without other circumstances crassce ncgligcntiee. In support of his opinion he cites the case of Ryder v. Bickerton, in 1743 ; but when that case is examined, as given in 3 Swans. 80, in nolis, it does not sustain his position. This decision of Ld. Worthington has long been repudiated ; and in the late case of Walker v. Symonds, 3 Swans. 1, (1818,) Ld. Eldon disapproved it in marked terms, and said it was different from the doctrines on which the court was accustomed to proceed.
The principle to be extracted from these authorities is, that the loaning of trust money, and especially where infants are concerned, on private security, is not a compliance with the rule that requires due security to be taken, and of course, that such loans arc made at the risk of the trustee. The decisions for the last half century have been uniform on this point, and the law, therefore, may be considered as settled at Wcsminstcr Hall. And it appears to me that the rule is a safe one, not only as it regards the cestui que trust, but the trustee also. There is a risk to the cestui quo Bust, even when investments are the most carefully and securely made in the stocks or on landed security. Stocks are liable to great depression. The abundance or scarcity of the circulating medium in a community, and the prospects of peace or war, to say nothing of the agitations caused by the spirit of restless and unprincipled speculation, are constantly causing a fluctuation in the stocks. So, in like manner, lands are liable to depreciate from similar causes, though not in so great a degree. Losses occasioned by a fall of stocks arc to be home, it has been
The rule is also a safe one for the trustee. It cannot be misunderstood ; and being uniform and general, renders the path of his duty plain. It would efttimes relieve him from the importunity of those who may wish to be obliged, and who may suppose they have personal claims upon him, but cannot give the proper security.
But though the principle appears to be so firmly settled in England, I do not find that it has been adopted to the same extent in this country.
In Smith v. Smith, 4 Johns. C. 281, the question came up incidentally before Chancellor Kent. As the case appeared before him lie was not called on to decide it, but lie gave his sanction to the doctrine, that a trustee loaning money must require adequate real security or resort to the public funds, so far as to express himself satisfied that it was a wise and excellent general rule.
In 1824, the case of The Administrators of Richard I. Cooper v. The Executors of Isaac Cooper, was decided in New-York by Chancellor Sanford : Hop. 233. It appeared that Isaac Cooper held two notes of one thousand two hundred and fifty dollars each, given by the Union Cotton Manufactory to Richard I. Cooper. He held them in trust for the representatives of Richard, and afterwards invested them in stock of the Otsego Cotton Manufactory, which became insolvent. The defendant alleged
I am not able to ascertain that the English rule has ever been adopted in this court, and I should feel some hesitancy in adopting it to the extent to which it is carried in their courts. The situation of the two countries differs very materially in many respects, and especially as it regards the facility of investments ; and what may be a prudent rule of policy in one country, may not be in another. In England, property can always be invested in the funds. These are recognised by their courts as safe and permanent securities, and it is the policy of every branch of the government to consider them so. In this country, the amount of public or government stock is very small, and in an inland state like our own, there are few opportunities for investing in that kind of security. The stock of private companies is not considered safe, and investments in that species of stock would scarcely be encouraged by a court of equity. There is, then, no other but landed security that would come within the rule. This can most generally be attained, and the court would advise it to be taken in all cases where public stock cannot be procured. It is safe to all parties, and is in accordance with the policy of the act directing the mode in which the money of infants in the hands of trustees may be put out to interest.
But while I take this opportunity of commending the safety of the English rule, and of warning trustees how they deal with the property of infants without securing it on real estate or in the funds, I do not feel myself called on, in this case, to adopt it in its rigour. For, admitting that these trustees had right to-loan this money on persona! security, still, an examination of the
It appears, in the first place, that the loan was made to Jonathan Britton on his simple bond, without even any personal security.
At this time Jonathan Britton was a trading man ; he was engaged in the lumber business, and was about to engage in mercantile pursuits, of all others, perhaps, the most hazardous, especially to the inexperienced. This should have induced great caution on the part of the trustees. They should have hesitated long, before they committed to his hands, at that time, and under those circumstances, so large a sum of money : and it is to be considered, also, that this loan was not temporary, for sixty or ninety days, but was intended as a permanent investment.
Secondly, They neglected to avail themselves of the privilege granted them by law, of putting out this money under the sanction of the orphan’s court.
I do not mean to say that when trustees omit to avail themselves of that protection, they are always to be held liable: I am not called on now to affirm or deny that principle. I only mean to say, that tire omission to procure such direction, is a species of negligence that must always have its weight. But,
Thirdly, The defendants have failed to show that Jonathan Britton was, at the time of the loan, a man of such property and substance as would justify the loan : nay, I think the contrary is plainly to be inferred from the evidence.
The testimony is not as full on this subject as it might have been. One of the witnesses, William Robertson, says, that about the time Britton got the money, “ his credit was very fair as to his ability to meet his engagements.” It may all be true, that he was reputed to be able to meet his engagements ; yet the safe inquiry for the trustees to make, was, what is his property, and what are his means of securing a repayment? We find from the testimony of this witness, that his credit soon began to fail. Tn 1822, he commenced store-keeping, in the fall. In 1823, he removed to another stand ; and in the former part of that year, he did a good deal of business, and was in good credit; but be
There is nothing to induce the belief that in the years 1822 and 1823, he parted with any valuable property, nor is his speedy insolvency in any way accounted for.
I think the manifest inference from these facts is, that Jonathan Britton, at the time the loan was made, was not a man of substantial property ; and that a little inquiry would have satisfied the trustees of the real stale of his affairs. These inquiries were not, made: they trusted simply to the credit of the person with whom they were dealing, and in so doing, acted with a degree of carelessness and negligence which this court cannot overlook.
It does appear to me, that under these circumstances, the trustees can have no reason to complain, if they are held responsible for the loss.
The administrators, then, are to be charged, unless they are protected by the proceedings of the orphan's court; and this brings me to the remaining question in the cause.
The answer states, that after the loan to Jonathan Britton, Edmund .Smith, who is guardian for a number of the infant heirs of Arthur Gray, was dissatisfied, and employed counsel to make application to the orphan’s court to have the money better
The orphan’s courts are authorized to require executors and trustees to give security to persons interested, and also to one another, in certain cases specified in the act, and they are also authorized to give leave and direction to them to put out their minors’ money to interest, upon security such as they shall allow of : Rev. Laws, 778-9. From the history of this proceeding in the orphan’s court, given by the complainant,, and from the decree entered by the court itself, I have been at a loss to ascertain what was the actual intention of the court. The proceeding appears to have originated with some of the heirs, who had fears for the safety of the money, and it is evident that it was originally an adversary proceeding. The defendant says, that Britton attended at the court in October, and being called on lo have the said monies secured by such security as the court should approve, he offered to give a mortgage to the defendant: on the other hand, the decree purports, on the face of it, to be on application of the administrators of Arthur Gray. If made on such application, it
It is true that in this case the court did more than merely confirm the loan—they approved of the security that was offered. This does not alter the principle. Would the court, if the money had been in (he hands of the administrators, have directed a loan to Jonathan Britton at that time, on such security'? I think not: but the money was already loaned, and the court appeared willing to do something to save it.
As between the two administrators, Britton and Fox, I see no ground for any distinction. They both concurred in the loan, and the liability is joint.
Let an account be taken of the principal and interest due the complainants. The question of costs, and all further equity and directions, are reserved until the coming in of the master’s report.